MSRP vs invoice price?
Are you in the market for a new vehicle? Do you want to lease a car, or buy it outright? If so, you’ve probably come across a couple of terms during your research: MSRP and invoice price. If this is your first time looking to buy a new car (or if you haven’t done so for several years), then you may be unfamiliar with those two terms. While both MSRP and invoice price involve the cost of a vehicle, there are some key differences between the two that you should know.
Let’s talk about what each term means, and how understanding them can help you to negotiate a lower price for your new car.
What is MSRP?
What does buying or leasing a car at its MSRP mean? MSRP stands for “manufacturer’s suggested retail price.” A car’s MSRP is often referred to as its “sticker price” because it’s typically displayed on a sticker on the car’s windshield. Sometimes dealers will call it the “list price.”
As its name implies, the MSRP is the price that car manufacturers suggest to dealerships as a baseline price point. You’ll often see a car’s MSRP featured in TV commercials or other ads (it’s usually the price that you hear after the words “starting at…”).
It’s important to note that a car’s MSRP is not necessarily the final price you have to pay for it. It’s only a suggested price, and it’s usually the starting point for your negotiations with the dealer – not the endpoint.
What is Invoice Price?
A vehicle’s invoice price is what the dealer will actually have to pay the manufacturer to acquire and sell the vehicle. Put another way, it’s what the dealer owes the manufacturer after they sell the car. Any money the dealer makes that’s over the invoice price they can keep as profit. The invoice price usually includes the base price of the vehicle itself plus additional costs the manufacturer needs to recoup, such as advertising expenses.
The interesting thing is that the invoice price is an estimated cost for the dealer. Manufacturers will often pay dealers incentives (or “holdback prices”) for them to sell the vehicles that the manufacturer produces. These incentives are expressed in terms of a percentage of the MSRP or invoice. (For example, a dealer that sells a car with an MSRP of $50,000 may receive an incentive that equals 2% of the MSRP, or $1,000.)
It’s important to know that dealerships and manufacturers often have these agreements in place. Sometimes a dealer may present the invoice price as the bottom-line price, but that’s not always the case. For instance, if a certain model just isn’t selling in the dealer’s local market, and they want to get rid of it, they may accept an offer that’s lower than the invoice price. On the other hand, if you’re looking at a popular model that’s in demand, you should expect to pay a price that’s closer to the MSRP.
So what does it mean to buy or lease a car at the invoice price? It could mean you’re getting the best possible deal. It could also mean the dealer just wants to remove that particular vehicle from their inventory.
What is the Cost Differential Between the MSRP vs Invoice Price?
This can vary widely, depending on the make and model of the vehicle. For example:
- Economy cars at the least expensive trim level usually don’t come with a huge dollar difference between the invoice price and MSRP. However, cars with a lot of luxury features and add-ons will likely have a much higher MSRP compared to their invoice price (since dealers can charge more for those features).
- Vehicles that are in high demand will usually have a high MSRP, whereas vehicles that are not very popular may have an MSRP that’s not too much higher than the invoice price. In fact, keeping unpopular vehicles on the lot may actually be costing dealers money – giving them extra motivation to sell it at a reduced price.
- A vehicle’s MSRP may be higher or lower depending on any incentives that the manufacturer offers the dealer (such as that 2% “holdback price” for when the vehicle sells).
Should You Start Negotiations at the MSRP vs Invoice Price?
Before you even set foot in a dealership office, it’s a good idea to know the market value of your preferred make and model – that is, the average price that other buyers in your area are paying for the car. In most cases, the market value is going to fall somewhere between the vehicle’s sticker price and its invoice price.
Once you begin negotiations, should you try to start at the MSRP vs invoice price? Most dealerships want to start at the MSRP to maximize their profits. Keep in mind that the MSRP is only for the “base version” of the vehicle. The price of the vehicle will usually rise if the dealer tacks on additional trim and luxury options.
Many experts recommend starting your negotiations at the invoice price and working your way up, rather than starting at the MSRP and working down. Why? For one thing, it frames the conversation in a more positive light (at least from the buyer’s point of view). Instead of the dealer complaining that they’re already “bending over backward” to go below the MSRP, the buyer can point to the amount of profit that the dealer will make if they accept the offer on the table. In addition, the tone of negotiations that start from the invoice price are often less adversarial, and more collaborative. (After all, you both are looking for a price point that provides the dealer with an acceptable profit margin, and the buyer with fair terms.)
In summary, you should know that:
- The manufacturer’s suggested retail price (MSRP) is the vehicle price point that manufacturers recommend to dealers. It is not the official price tag.
- The invoice price is what dealers will have to actually pay to car manufacturers. It may or may not be their bottom-line price.
- You should research the local market value of a vehicle before talking with a dealer. Once you do reach out to a dealer, it may be better to start negotiations at the vehicle’s invoice price and work your way up (but not too far up!), instead of starting at the MSRP and working your way down.
If you’re looking for the perfect car at a reasonable price, then Autoswiftly is the answer you’ve been waiting for. Our team will help you to find a vehicle that meets all of your needs and will work with you to arrive at a price you can be happy with. Start the process today!
Recommended reading: What Does MSRP Stand For?